Expensive and Uncertain: Reporting on Medicaid

Published on
May 19, 2011

When I started researching the winners and losers of an expansion of Medicaid coverage under the health-care law, I imagined that insurers would be celebrating the 16 million potential new patients being added to the rolls.

Instead, as I dug through the SEC filings of publicly-traded managed care organizations, I found evidence that these companies were worried. For example, Centene Corp., a St. Louis-based managed care firm that specializes in Medicaid, said in its Feb. 22 10-K filing that "states may reduce our rates in order to afford the additional beneficiaries."

It was an unexpected twist that drove my reporting. Why would companies that profit from providing health-care to poor people be anxious about getting millions of new patients?

I spoke with dozens of health-care analysts and former state officials who provided data, insight and anecdotes from past attempts to expand Medicaid programs.

Under the health-care law, Medicaid enrollment will rise as people with incomes below 133 percent of the federal poverty level are pushed into the program starting in 2014. Much of the newly insured Medicaid population will be made up of younger men, who have avoided primary care and could have neglected and expensive health conditions.

And therein lies the problem. Insurers pride themselves on minimizing their exposure risk to maximize profit. Suddenly, the U.S. government was requiring them to take on 16 million potential expensive uncertainties.

"If that's your new market, vetting your premiums appropriately for that risk profile is going to be challenging," Alan Weil, executive director at the National Academy for State Health Policy, said.

Managed care companies had in the past protected themselves from these kinds of unknown health costs by putting risk-sharing provisions into contracts, where states promise to take on some of the financial burden.

States struggling with financial issues, though, may be less willing to share risk. Insurers, faced with a more competitive marketplace, may lose the upper hand in negotiating their contract terms.

And if insurers are worried, then patients may need to be concerned. As James Shurtleff, a health-care analyst for Stifel, Nicolaus & Co., told me in an interview, if Medicaid companies compensate for inadequate rates in their state contracts by paying doctors and hospitals less money, it could "threaten the safety net" for patients in some markets. Doctors could simply stop taking on Medicaid patients.

States are just starting to renegotiate their Medicaid agreements and, in the coming months, reporters covering Medicaid should keep an eye out for changes in the contracting landscape.

There isn't a central database of state Medicaid contracts solicitations for proposals, but those documents are available on a state-by-state basis. Some states post their solicitation paperwork, proposals, and signed contracts online.

Texas, for example, whose Medicaid program in 2009 comprised a quarter of its total spending, is leading states renegotiating their contracts for the program. A draft request for proposals will expand the scope of services and geographical areas covered by Medicaid managed-care plans.

The public filings and earnings calls of managed-care firms are another rich source of information on company strategy in the wake of new laws. These kinds of documents may provide early clues to how states, insurers, doctors, and, ultimately, patients will fare under health reform.